Mayors of Chicago and Los Angeles Say Bond Defaults Likely

Los Angeles Mayor Antonio Villaraigosa and Chicago Mayor Richard Daley have warned that it is very likely that local governments are going to default on their bonds, as financial strains weigh heavily while trying to maintain necessary municipal services. Speculation has been rampant about local governments defaulting in the $3 trillion municipal market, where returns plummeted in the 4th quarter of 2010 by the most since 1994.

Defaults by cities and counties are rare and Mayor Villaraigosa maintains that the municipal defaults will be confined to the smaller cities and counties. Last year Harrisburg, PA was financially stressed after missing bond payments on a troubled incinerator project and Jefferson County, Alabama was on the verge of bankruptcy because of a sewer financing deal.